GebreMariam: African Airlines Need Cooperation to Dominate Regional Market

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Tewolde Gebre Mariam

The Group Chief Executive Officer of Ethiopian Airlines, Tewolde GebreMariam, in this interview said African airlines need to increase their market share in the region by increasing their level of collaboration or adopting measures such as mergers and acquisition. GebreMariam, who spoke at the just concluded MRO Africa held in Addis Ababa, also explained why his airline has been successful. Chinedu Eze brings the excerpts:

What is the secret of the success of Ethiopian Airlines?
I think we agreed that we have done a good job for the continent, cumulatively now we fly to close 125 international destinations and 63 of them are in Africa. So, we have done our share to bring Africa together and connect Africa although we still have a lot to do, but we have done our share to connect African cities with global trading centres of the world, like China, India, South East Asia, Europe, Middle East North America and South America. So, we have the world within our reach and it means a lot for people doing business between Africa and the rest of the world because connectivity is the engine of social economic development. So, to answer the question, let me first share with you our belief: past performance is not a guarantee for future success. Although we all first have to learn from history and learning from history is a vital knowledge base for the future, but past performances cannot guarantee future successes, future success can only be guaranteed by what we intend to do, what we base on and also establishing a strong foundation. So, in our vision 2025, we focused on four major pillars of the vision and these are: number one Human Resource management. Human resource development is key critical. It is the starting point because businesses are all about people and as you talk about the airplanes, it is about the people. So, investing more than $100 million in our regional carrier, other airlines in Europe or US or elsewhere may not be required to do so because the market is huge and they can always have the best global talent wherever it is located. But in our case our survival is very critical. So, continuous flow of training of pilots, technicians, engineers and other parts of the business is very, very important. So we have made sure that a continuous supply of these key professionals in aviation area was our priority and will continue to be our priority.

A lot of time we talk about the brain drain from the developing countries to the developed world countries, that’s still continues. And we will want to quickly solve that trend, the answer to that was to train as many as possible. So today, except in pilots where we have about 15 per cent of our pilots from foreign countries, we are training more technical personnel and in fact we are supporting our zeal in this goal, women have plus or minus about 200 technicians all over Africa supporting other airlines and joint venture airlines. So human resource development is key. The second one is fleet. As we are all in the airline industry, fleet choice, the right fleet for the right operation is very important because that is the most expensive source. So, we have invested in modernising our fleet and today our fleet average age is about five years while the global industry is around 12 years. So we have a relatively young fleet. The third one is the infrastructure: which you don’t see in many airlines development in the rest of the world. So, we have a very large amount of facilities, aviation academy, which can train about 4,000 students a year. Right now we are using around 1500 for the normal operation for its capacity, which means we have capacity for growth, the expansion of the airport and a million tonnes cargo capacity. Right now we are using around 460 thousand tonnes, so again with over 50 per cent capacity, giving us enough room to grow. And the fourth one is systems: by systems we mean the processes and also the IT system, which brings them together. Today the airline is fully automated internally integrated by finance, procurement, human resources, operations and MRO. We have also automated the customer services, so the investment in the in the four pillars is one of our assurance that we will keep on succeeding.

You mentioned earlier in your presentation, that Ethiopian airlines has achieved and even exceeded the target in vision 2025, what are the targets for 2035?

The fact that we achieved the targets for vision 2025 encouraged us to come up with a new strategic roadmap. So, in our planning policy, we have a statement, which says that as an airline we should have 50 years strategic roadmap at any point in time. So, that is the driving force of our planning policy. So now we are coming with a new strategic roadmap for vision 2035, which starts this year 2020 and it goes to 2025. So basically we are going to scale up the goals and we make an analysis of all the driving forces, the business model, the objective, the strategy and also the operating requirement and as you all know is safe, we drew a line from China all the way to Brazil, and Addis is located right in the middle and that is a huge geo-location advantage, of course on the disadvantage side, Addis is 2400 meters above sea level, a challenge for G-engines, and for airplanes, that is a huge challenge because we use between 10 to 20 tonnes on every flight on a wide-body plane because of the altitude. But again in that location advantage, if we take a flight radius with a Boeing 787, 10 hours flight radius around our location, 10 hours east, 10 hours north, south and west, there are more than 6.3 billion people living in this region. And most of these locations are located in a fast growing trade line. The line between China and Brazil is the fastest growing trade line today in our world. So this shows that we still have the opportunity for growth and as long as we do the right thing at the right time, we believe that we can scale up the growth.

You announced recently that Ethiopia is building a new airport about 40 kilometers away; we understand this is for better performance of the aircraft at the rural altitude. But from a practical stand point, when you look at Bole, you look at the investment you have invested in this airport, how do you balance it if you now move the hub from Bole to the new airport? What will Bole be used for if you have a new airport?
This is a very good question and it has been discussed internally and it is a valid question and we have to do a lot of analysis on how to go about it. But the thing is let’s look at Bole at the current location; we have out grown the location. Bole is already surrounded by the city and the opportunity to grow in Bole is almost nil because the space is almost exhausted. So we are trying to stretch as much as we can to grow in Bole but our analysis revealed that beyond 2025 we need a new airport. The current location and capacity, even after we have invested 350 million US dollars to expand the airport and now the capacity grew from around 14 million today to 22 million. But again the growth of the airline, with the growth rate that we are going by 2025 we will be passing that number. So congestion will be a major problem and it has been a major problem. So long planning is very important. So the new airport is going to give us enough room for growth.

If we remain here, then our growth will still be at current pace. So the move is mandated by the constraint here at Bole. And also on our way we also partially resolve the altitude issue because right now it is 2400 meters above sea level, but in the new location it will be 1900 for the new GU9X then you will be able to fly directly to Washington. As you all know today we have direct flight to Washington with a technical stop in Dublin. Washington Addis we can fly direct but Addis Washington we cannot and we have given explanations to the customer why we need to stop in Dublin simply because of the altitude. And in terms of maintaining the two locations, that is why we choose a location, which is not far away from Bole.

When you look at the African airline landscape, it is very lopsided. While on one hand you have a strong Ethiopian Airlines, on the other hand you have many weak African airlines, so there is an imbalance, can you comment on why it is so?

Yes, and we are not happy about that because although as you said so far we are profitable with the growing and a remarkable growth rate but let’s put all African airlines together – big, small and medium – we are all small airlines in Africa because if we are the largest airline in Africa, we only have 130 airplanes and when you compare these number of airplanes with the Emirates of this world, we are still small, we are very small. So, put together all of us, we only have 20 per cent of the market share. So it is not someone is growing faster than the other, someone is more profitable than the other. I think as a continent we have a problem and we need to solve this problem. The market share came down from 60 per cent and depending on how you measure it, it is even lower than 20 per cent according to AFRAA (African Airlines Association) and that decline is continuing and who knows if that decline continues where it all happens. So, I think we all need to cooperate and put our resources together, if there is a need for consolidation, then let’s consolidate or if we need to maintain our brands, we can maintain our brands. Air France and KLM they maintain their brands but as a group they are strong when they merger. The Lufthansa group maintained Swiss as a brand, again, as a group they are stronger. So, I think we have to work together in terms of developing indigenous Africa aviation. An airline X (foreign carrier) can fly to a city in Africa and how many people does it employ? 10 or 20 people. But an indigenous airline in that country can employ maybe up to 1000 or 2000 people. So, indigenous airline enhances job creation and also preparing the African aviation for Africa within Africa by Africans. So I think we should focus on that.

Is it time for Ethiopian airlines to consolidate or to grow further? Can you do both successfully?
As I said we still have a big room for growth because the continent share of the entire global aviation is only 2.3 per cent, so Africa is growing, Africa is attracting a lot of direct foreign investment. Africa’s exports are growing and African middle class is growing. Today before you know it, we have around between 200 and 300 million people who are categorised as middle class society.

These are people can afford to travel by air within Africa and the rest of the world. Now, if we continue to grow the indigenous aviation sector in the continent and then we have growth opportunity for all of us. The market can grow big enough for all of us. And in terms of consolidation, I think Ethiopian Airlines has to be mindful of its growth and also its stability. As you must have noticed in the last decade, we have been trying to expand our hub system, expansion to West Africa, central Africa, Southern Africa, Eastern Africa; in places where it makes sense to develop a hub. And we strongly believe that having dominant operating model, even in very well developed aviation sectors like Europe, you still have hubs like Amsterdam, London, Paris and Frankfurt. So secondary markets are speed routes to the hub, so the hub system in Africa is going to bring Africa together and by doing so we are also supporting other African countries in their ambition to re-establish their national carriers. So the cooperation part is also being taking care of.

Let us look at your alliance strategy in Africa. Initially, Ethiopian airlines was setting a hub in West Africa, Southern Africa and central Africa. But today, I am see you establishing JVs in Equatorial Guinea, Ghana, establishing a 100 per cent owned airline in Mozambique. It seems to me that the original alliance strategy is changing in a sense that you wanted three secondary hubs before, and now you are talking to Ghana, you have been in Nigeria, can you just tell us what these JV strategy in Africa for Ethiopian airlines is?

The strategy is, again is always around enabling and empowering Africans to contribute, to participate in the continent’s aviation development. First we are strengthening and expanding the hub because we don’t believe that every African country or every African government’s ambition is to put a national flag carrier. It doesn’t work that way, because this is a purpose driven, economics of scale, economics of density are very, very important in the aviation industry. So we are developing the hubs where they make economic sense but at the same time, we are also supporting other African governments in their ambition to re-establish their national carrier. Take Nigeria, for instance, right now there is no African airline flying between Nigeria and Europe. There is no African airline flying from Ghana to Europe or from Nigeria to the UK or from Ghana to UK. The other airlines are flying, good. They are serving the public, good. But you need competition, because the customer needs competition because fares on the routes that I mentioned now are very, very high. So competition will bring the fares down, better quality and make a lot of choices for the customer.

Ethiopian is a friend to all in Africa, in my view and yet being strong and powerful, but Ethiopian Airlines went into Mozambique and formed a 100 per cent airline in Mozambique to compete head to head with a national carrier. What necessitated that strategy?
We have been invited by the Mozambique government to support the air carrier in the country. We have been working with them but sadly the country cannot develop itself without air transport service. Mozambique is a very young country, as you know, from Mabula or Makala to Maputo is three hours. So they need air transport in their social economic development. And they have invited us to support them, they set out RMP, we participated in their tender and we won, and we have a small airline there. Look at the contribution of that small airline to the domestic air transport market in Mozambique. Fares have gone down and this is done by the travelling public. Connectivity has improved; we have hubs in Maputo and another hub in Kenya.

So, is it not possible for you to run in partnership with the national airline of Mozambique?
Yes, it is possible but it takes two to tango. Yes, so we partner with them, because there is still enough market for growth. In Mozambique investment is coming in. The next couple of years in Mozambique will be huge and tremendous, so we still have opportunity to work together.

It is almost one year to the tragic accident in Ethiopia, our thoughts and our prayers are with the families of the deceased and to Ethiopian Airlines staff and management. What impact did it have on you personally going through this crisis?

Well this is a very tragic accident, which could have happened to any airline, as we all know it has to do with the programmes in the airplane. It was very unfortunate that it happened to us and it is very, very tragic. It has consumed a whole part of us and it was very shocking but as you said, we have handled it professionally. Personally it was a very, very testing moment, and it took me by surprise, it was a shock and it took me quite a long time to come to terms with reality, to accept reality because in the first moments, how can it be, it cannot happen and the denial, of course and the emotional aspect but I have to accept the reality. And this is a tragic accident that we lost our colleagues, our passengers, and 2019 was a very, very challenging year in our history because of that and it was a very sad story.

Going forward when the model of aircraft type is re-certified, do you intend to still fly the aircraft?

This is a very tough question because number one, we believe that all the problems of the airplane are going to be fully resolved and we have to see that. The other thing is that we have not made a decision; we are still waiting. It is not going to be an easy decision. On one hand, we are committed to the 737 NG as you know they operate NGs and the Max is an extended version of that, so diversification has its own problems but the same time we also need a very strong, solid, sound business case to convince our internal personnel and also our customers that the airplane is fully safe. So we have not made that decision, we have to yet see how and when it comes back.

Ethiopian Airlines has gone through rapid growth, your staff are under great stress to cope with this growth, how do you reassure them, encourage them, incentivise them?
As you said, you know the purpose of working at Ethiopian Airlines is a little bit different. Of course, we are all hired by the company and being paid salary by the company but the purpose why we work for Ethiopian Airlines is not for the pay cheque. I am sure if you ask everybody at Ethiopian Airlines at whatever level they will tell you the same thing.

We are working for the vision, for the vision that we inherited from our forefathers, that they have given us an airline which has survived wars, famine, poverty and all kind of challenges in the last 70 plus years. So there is a passion to it that the young generation today, maybe my generation or the generation younger than I are taking it upon themselves that if the airline survived all the challenging times it should continue to succeed in their generation. So, there is a commitment, determination and passion within each and every one. That is a big, big asset of the airline and that is continuing. Today our technicians where ever they are, if they have a problem in the airplane they will not leave the airplane before they fix the problem, no matter how long it takes, 24 hour or 12 hours, they must make sure that they fix it. This is something intrinsic which has brought the airline to this level. Going forward, yes growth is not an easy thing, growth means commitment, passion and growth may have some stretching on the resources of the organisation. But at the same time as I said the fact that we have the largest aviation academy, it shows and has showed us that we can continue to produce the numbers that we want to cope with the growth. For instance, we have been growing double digit close to 20 per cent in the last one decade.

What is your management and leadership style?
I think hard work and of course smart hard work. And that has to start from the leader; you cannot give instructions from 40,000 personnel; you have to experience it, you have to see it, you have to try it and they have to work together. So being a role model is very, very important because you walk the talk. You walk the talk about strategy, about execution, vision but you have to show them that you yourself work like 14 hours a day and 7 days a week. So that is very, very important because everybody follows the leader.